Method, apparatus, and system for varying an award volume in an auction

ABSTRACT

A method of allocating an award in an auction wherein an award for a given auction round is allocated amongst a plurality of highest ranked bidders including at least a first ranked bidder and a second ranked bidder is disclosed. The method provides an incentive to the first ranked bidder and the second ranked bidder to each improve their respective bids during the conducting of the auction. The method includes adopting a formula for allocating the award amongst at least the first ranked bidder and the second ranked bidder, conducting the electronic auction, and allocating the award between at least the first and second ranked bidders in accordance with the formula and the bids of the first and second ranked bidders. A factor of the formula is an actual bid differential between a bid of the first ranked bidder and a bid of the second ranked bidder. Furthermore, application of the formula to bids of the first and second ranked bidders causes a first portion of the award allocated to the first ranked bidder to increase, and a second portion of the award allocated to the second ranked bidder to decrease as a magnitude of the actual bid differential increases.

CROSS-REFERENCE TO RELATED APPLICATIONS

[0001] The present application is a continuation-in-part of U.S. patentapplication Ser. No. 09/252, 790, filed Feb. 19, 1999, and U.S. patentapplication Ser. No. 09/490, 877, filed Jan. 24, 2000, both of which arecurrently pending and assigned to the assignee of the present invention.

BACKGROUND OF THE INVENTION

[0002] 1. Field of the Invention

[0003] The disclosed invention relates generally to awarding a variablevolume to one or more bidders in an auction, and in particular, tobasing the volume allotted to a bidder on the differential amount bid byat least two bidders.

[0004] 2. Description of the Background

[0005] Procurement of goods and services have traditionally involvedhigh transaction costs. The cost of finding and qualifying potentialbidders has been particularly high. The advent of electronic commercehas introduced new methods of procurement that lower some of thetransaction costs associated with procurement. Electronic procurement,in particular business-to-business electronic procurement, matchesbuyers and suppliers and facilitates transactions that take place onnetworked processors.

[0006] Four models of electronic procurement have been developed:catalog, buyer-bidding auctions, seller-bidding auctions, and exchangemarketplaces.

[0007] The “catalog” model was an early form of online electronicprocurement. Initially, electronic catalogs were developed primarily bysellers, typically suppliers, to help customers obtain information aboutproducts, and order supplies electronically. Those first electroniccatalogs were single-source; i.e. they only allowed customers to obtaininformation and products from that supplier.

[0008] Although the first electronic catalogs reduced the informationsearch cost associated with procurement, customers weredisadvantageously “locked in” to one supplier at each electroniccatalog. Customers were thus unable to compare a number of competingproducts in a single catalog. Therefore, certain suppliers withsingle-source catalogs began including competitors' products in theirsystems. The inclusion of competing products in electronic catalogsreduced procurement information search costs even further. By offeringcompeting products, electronic catalogs became “electronic markets.”

[0009] Many electronic catalogs, however, were biased toward thesupplier offering the electronic catalog, and it was thought thatprocurement costs could be lowered further through an unbiased market.Therefore, third-party “market makers” developed markets for manystandard products and services, which were intended to be unbiasedmarkets.

[0010] Electronic commerce using the electronic catalog model typicallyinvolves one buyer and one seller at a time. When many buyers competefor the right to buy from one seller, a buyer-bidding auction model, orforward auction, is created. Catalog and buyer-bidding auction models,however, have limitations and do not work well in every situation. Forexample, it is difficult for a supplier to publish set prices in acatalog for custom products. Therefore, when a buyer requires a customproduct, pricing for that product typically will not be found in acatalog. Likewise, it is difficult to specify a custom product andidentify buyers who might use that custom product for a buyer-biddingauction. Additionally, there may be only one buyer interested in acustom product, such that a buyer-bidding auction may not be applicablein all cases. Thus, few suppliers can typically provide custom goods andservices and standard product and pricing information is typically notavailable for buyers of custom industrial products.

[0011] Referring again to the cost of traditional procurement, andparticularly procurement of custom products and services, when a companyrequired a custom product, a buyer for the company would typicallyprocure the product by searching for potential suppliers and thenacquire price quotes from the potential suppliers for the needed customproduct. The search tended to be slow and random, and typically reliedheavily on personal relationships. The costs associated with locatingvendors, comparing prices, and negotiating a deal were therefore large.The cost of switching suppliers was also large, such that an incumbentsupplier's quoted price was most likely not the lowest price he couldoffer because the incumbent supplier knew the buyer would face switchingcosts to use another supplier. As an additional consequence, newsuppliers had a difficult time entering the market because of those highswitching costs.

[0012] Therefore, supplier-bidding auctions for products and servicesdefined by a buyer have been developed. The assignee of the presentapplication has developed a system in which sellers downwardly bidagainst one another to achieve the lowest market price in asupplier-bidding auction. In such auctions, various goods or servicesmay simultaneously be placed for auction. In certain situations,however, it is desirable to award contracts to two or more bidders in asingle auctions round.

[0013] Thus, there is a need for a system, apparatus and process wherebya sponsor may conduct an auction having multiple awards in a singleauction round. Furthermore, when awarding multiple contracts in a singleauction round, there is a need to provide a system, apparatus andprocess whereby bidders are provided with an incentive to improve theirbids even though they are in a position to be awarded a contract in viewof their current bids.

[0014] There is also a need for a system, a method, and an apparatusthat allows a purchaser to purchase goods and/or services from more thanone supplier in a single auction round. There is a need for a system, amethod, and an apparatus that allows a purchaser to purchase a quantityof goods or service that is greater than the quantity that at least onebidding supplier is able to provide in a single auction round.Furthermore, there is a need for a system, a method, and an apparatusthat allows a purchaser to vary the volume that it will purchase in anauction depending upon the bids received during that auction.

SUMMARY OF THE INVENTION

[0015] The present invention is directed to a system and method forconducting an electronic auction wherein an award for a given auctionround is allocated amongst a plurality of highest ranked bidders,including, at least a first ranked bidder and a second ranked bidder.The invention provides an incentive to the first and second rankedbidders to each improve their respective bids during the conducting ofthe auction. The invention uses a formula for allocating the awardamongst at least the first and second ranked bidders. The formulaincludes as a factor an actual bid differential between a bid for thefirst ranked bidder, and a bid of the second ranked bidder. Applicationof the formula to bids of the first and second ranked bidders causes afirst portion of the award allocated to the first ranked bidder toincrease and a second portion of the award allocated to the secondranked bidder to decrease as a magnitude of the actual bid differentialincreases. During and/or after the conducting of the auction, the awardis allocated between at least the first and second ranked bidders inaccordance with the formula and the bids of the first and second rankedbidders.

[0016] In accordance with one form of the present invention, there isprovided a method, system, and apparatus for varying an allocated volumein an auction. In one embodiment, the method includes determining arange of volume to be allocated to the first bidder, formulating aformula based on the range of volume to be allocated to the first bidderand a differential bid range, and applying an actual differentialbetween bids placed by a first bidder and a second bidder in an auctionto the formula to determine the volume to be allocated to the firstbidder. Any remaining volume to be awarded or allocated may then beallocated to one or more other bidders in the same auction. The methodof the present invention can be applied to both reverse and forwardauctions. In addition, the method is particularly applicable to onlineauctions where bidders submit bids to an auction coordinatorelectronically online during the auction process.

[0017] In accordance with another embodiment of the present invention, asystem for varying an award volume in an auction is provided. The systemincludes a sponsor processor, a first bidder processor communicatingwith the sponsor processor, and a second bidder processor communicatingwith the sponsor processor. In the system, the sponsor processorcontains instructions which, when executed by the processor, cause theprocessor to determine a range of volume to be awarded to a firstbidder, formulate a formula based on the range of volume to be awardedto the first bidder and a differential bid range, and apply the formulato an actual differential between bids placed by the first bidder and asecond bidder in an auction to determine the volume to be awarded to thefirst bidder.

[0018] A computer readable medium having instructions stored thereon isalso disclosed. The instructions are such that when executed by aprocessor, the instructions cause the processor to determine a range ofvolume to be awarded to a first bidder, formulate a formula based on therange of volume to be awarded to the first bidder and a differential bidrange, and apply the formula to an actual differential between bidsplaced by the first bidder and a second bidder in an auction todetermine the volume to be awarded to the first bidder.

[0019] In accordance with yet a further embodiment, the presentinvention is directed to a bidding device operated by a bidder during anonline auction. The bidding device could, for example, be a personalcomputer, workstation, or terminal used by the bidder during theauction. The bidding device includes software that enables the bidder tosubmit bids to a sponsor processor during an auction. The sponsorprocessor determines a range of volume to be awarded to the first bidderand applies an actual differential between bids placed by the firstbidder and a second bidder in an auction to a formula based on the rangeof volume to be awarded to the first bidder and a differential bid rangeto determine the volume to be awarded to the first bidder. The bidderfurthermore submits bids to the sponsor processor through the biddingdevice.

[0020] Thus, the present invention provides a method, apparatus, andsystem whereby a sponsor may conduct an auction having multiple awardsin a single auction round. Also, the present invention provides asystem, a method, and an apparatus by which an award volume in anauction may vary in accordance with a difference between bids placed. Inaddition, the present invention provides a system, a method, and anapparatus that allows a purchaser to purchase a quantity of goods orservice that is greater than the quantity that at least one biddingsupplier is able to provide. Furthermore, the present invention providesa system, a method, and an apparatus that affords an incentive forbidders to improve their bids even though they are in a position to beawarded a contract in view of their current bids. The present inventionalso provides a method, a system, and an apparatus that allows apurchaser to vary the volume that it will purchase in an auctiondepending upon the bids received during that auction.

[0021] Accordingly, the present invention provides solutions to theshortcomings of prior online auctions. Those of ordinary skill in theart will readily appreciate, therefore, that those and other details,features, and advantages will become further apparent in the followingdetailed description of the preferred embodiments.

BRIEF DESCRIPTION OF THE DRAWINGS

[0022] The accompanying drawings, wherein like reference numerals areemployed to designate like parts or steps, are included to provide afurther understanding of the invention, are incorporated in andconstitute a part of this specification, and illustrate embodiments ofthe invention that together with the description serve to explain theprinciples of the invention.

[0023] In the drawings:

[0024]FIG. 1A is a schematic illustration of the entities involved in anembodiment of an auction wherein the sponsor identifies goods orservices to be purchased in a request for quotation;

[0025]FIG. 1B is a schematic illustration of entities participating inan embodiment of an auction;

[0026]FIG. 1C is a schematic illustration of entities participating inan embodiment of a contract award following an auction;

[0027]FIG. 2 is a schematic illustration of communications links betweenthe coordinator, the buyer, and the suppliers in an embodiment of anauction;

[0028]FIG. 3 is a schematic illustration of auction software andcomputers hosting that software in an embodiment of an auction;

[0029]FIG. 4 is a schematic illustration of an embodiment of an auctionnetwork;

[0030]FIG. 5 is a flow diagram illustrating an embodiment of an auctionthat occurs in rounds, in accordance with the present invention;

[0031]FIG. 6 is a flow diagram illustrating another embodiment of anauction that occurs in rounds, in accordance with the present invention;

[0032]FIG. 7 is a flow diagram illustrating an embodiment of an auctionin which multiple contracts are awarded, in accordance with the presentinvention; and

[0033]FIG. 8 is a flow diagram illustrating another embodiment of anauction in which multiple contracts are awarded, in accordance with thepresent invention.

DETAILED DESCRIPTION

[0034] Reference will now be made in detail to the preferred embodimentsof the present invention, examples of which are illustrated in theaccompanying drawings. It is to be understood that the Figures anddescriptions of the present invention included herein illustrate anddescribe elements that are of particular relevance to the presentinvention, while eliminating, for purposes of clarity, other elementsfound in typical auction systems and computer networks. The presentinvention described below extends the operation of the inventive auctionsystems and methods described in greater detail in co-pendingapplication Ser. No. 09/252,790, entitled “Method and System forControlling Closing Times of Electronic Auctions Involving MultipleLots” filed Feb. 19, 1999, and co-pending application Ser. No.09/490,877, entitled “Method and System for Partial Quantity EvaluatedRank Bidding in Online Auctions” filed Jan. 24, 2000 the disclosures ofwhich are hereby expressly incorporated in the present application.

[0035] In a supplier-bidding auction or reverse auction, bids, which areoften in the form of a price quote, typically start high and movedownward over time as bidders interact to establish a closing price.Typically, the auction marketplace is one-sided, with one buyer and manypotential suppliers, although multiple-buyer auctions are possible.Typically, products are purchased in the form of components ormaterials. “Components” may include fabricated tangible pieces or partsthat become parts of assemblies of durable products. Example componentsinclude gears, bearings, and appliance shelves. “Materials” may includebulk quantities of raw materials that are further transformed intoproducts. Example materials include corn syrup and sheet steel. Servicesmay also be purchased in such a reverse auction.

[0036] Industrial buyers do not typically purchase one component at atime. Rather, they tend to purchase whole families of similarcomponents. Therefore, in a typical industrial supplier-bidding auction,products are grouped together in “lots” of related items for bidding. Ina regular lot bidding auction, each lot is composed of several “lineitems.” In the regular lot bidding auction, the suppliers bid on eachline item and the bidder 30 having the best bid for all of the parts inthe lot is the best bidder 30. The best bidder 30 is typically awarded acontract to supply the items in the lot. In an aggregate type lot bid, asingle bid for all of the line items is submitted by each bidder 30 andthe bidder 30 submitting the lowest aggregate price is the best bidder30. By lotting products, potential suppliers can bid on lots for whichthey are best suited, and are not typically required to bid on everylot. Such a division into lots beneficially reduces the barrier to entryfor new potential suppliers that only have capability to supply some ofthe needed products in the auction. Reducing the barrier to entry alsobenefits the purchaser by injecting additional bidders 30 into biddingfor certain lots.

[0037] Typically, components in a lot are related to one another suchthat it is more efficient to have a supplier provide all of thecomponents in that lot. As an example, a buyer might purchase a givenplastic knob in two different colors, or might purchase a nameplate infour different languages. Those parts are so similar that it is nearlyalways more efficient to purchase those related components from the samesupplier because, for example, all of the knobs may be made using withsame mold. Thus, such related items are typically grouped in a single“lot.” As is known by one skilled in the art, there are many additionalmethods of lotting products for an auction.

[0038] The basic process for a purchaser sponsored supplier-bidding orreverse auction, as conducted by the assignee of the present invention,is described below with reference to FIG. 1. FIG. 1 illustrates thefunctional elements and entities involved in setting up and conducting atypical supplier-bidding auction. FIG. 1A illustrates the creation of anauctioning event, FIG. 1B illustrates the bidding during an auction, andFIG. 1C illustrates results after completion of a successful auction.

[0039] As will be apparent to one skilled in the art, while theinvention is generally described in terms of one buyer and multiplesuppliers, the present invention may also be used in other types ofelectronic markets, such as auctions having multiple potential buyersand sellers, forward auctions having a single seller and multiplepotential purchasers, upward-bidding auctions, or electronic exchangemarketplaces. The term “sponsor” will be utilized herein to identify theparty or parties that originate the auction. In a forward auction, forexample, the sponsor would typically be the supplier or seller of one ormore goods or services. In such a forward auction, that sponsor mightstate a good that it desires to sell and receive bids from partieswishing to purchase that good. Those parties wishing to purchase thatgood would furthermore be “bidders” 30 in such a forward auction.

[0040] In a reverse auction example, the sponsor would typically be thepurchaser or buyer of one or more goods or services. In such a reverseauction, that supplier might state a good that it desires to purchaseand receive bids from parties wishing to supply that good. Those partieswishing to supply that good would furthermore be “bidders” 30 in such areverse auction.

[0041] In the typical supplier-bidding reverse auction model, theproduct or service to be purchased is usually defined by the sponsor ofthe auction. As shown in FIG. 1A, when the sponsor 10 decides to use theauctioning system of the present invention to procure products orservices, the sponsor 10 provides information to an auction coordinator20. That information may include information about incumbent suppliersand historic prices paid for the products or services to be auctioned,for example. Typically, the sponsor 10 may also work with the auctioncoordinator 20 to define the products and services to be purchased inthe auction and, if desired, lot the products and services appropriatelyso that needed products and services can be procured using optimalauction dynamics. A specification may then be prepared for each desiredproduct or service, and a Request for Quotation (“RFQ”) generated forthe auction.

[0042] Next, the auction coordinator 20 typically identifies potentialsuppliers 30, preferably with input from the sponsor 10, and invites thepotential suppliers 30 to participate in the upcoming auction. Thesuppliers 30 that are selected to participate in the auction becomebidders 30 and may be given access to the RFQ, typically through an RFQin a tangible form, such as on paper or in an electronic format.

[0043] As shown in FIG. 1B, during a typical auction, bids are made forlots. Bidders 30 may submit actual unit prices for all line items withina lot, however, the competition in an auction is typically based on theaggregate value bid for all line items within a lot. The aggregate valuebid for a lot may, therefore, depend on the level and mix of line itembids and the quantity of goods or services that are offered for eachline item. Thus, bidders 30 submitting bids at the line item level mayactually be competing on the lot level. During the auction, the sponsor10 can typically monitor the bidding as it occurs. Bidders 30 may alsobe given market feedback during the auction so that they may bidcompetitively.

[0044] Feedback, including bidder 30 identity, about bidding activity isreferred to as “market feedback” and includes any information or datarelated to the bidders 30 or their bids, interrelationships betweenthose bids, and any other bid related information or data that isreceived before or during the auction. Market feedback may include, forexample, bids that have been placed by other bidders 30, the rank of aparticipants bid in relation to one or more other bidders 30, theidentity of bidders 30, or any subset of that information. Marketfeedback may also include non-pricing information such as, for example,the quality of the goods to be provided by bidders 30 and shipping costsassociated with one or more bidders 30. Providing such market feedbackto bidders 30 in an auction helps create real-time competitiveinteraction among participants in the auction because, without feedback,bidders 30 who are not leading in an auction might not be aware or theirrelative position and would have less incentive to revise their pricequotes and place additional bids to remain competitive.

[0045] After the auction, the auction coordinator 20 may analyze theauction results with the sponsor 10. The sponsor 10 typically conductsfinal qualification of the low bidding supplier or suppliers 30. Thesponsor 10 may furthermore retain the right not to award business to alow bidding supplier 30 based on final qualification or other businessconcerns. As shown in FIG. 1C, at least one supply contract is usuallydrawn up and executed based on the results of the auction.

[0046] The auction may be conducted electronically between bidders 30 attheir respective remote sites and the auction coordinator 20 at itssite. In an alternative embodiment, instead of the auction coordinator20 managing the auction at its site, the sponsor 10 may perform auctioncoordinator tasks at its site.

[0047] Information may be conveyed between the coordinator 20 and thebidders 30 via any known communications medium. As shown in FIG. 2,bidders 30 may be connected to the auction through the Internet via anetwork service provider 40 accessed, for example, through a dial-uptelephone connection. Alternately, sponsors 10 and bidders 30 may becoupled to the auction by communicating directly with the coordinator 20through a public switched telephone network, a wireless network, or anyother known connection method. Other methods of connecting sponsors 10and bidder 30 and other communications mediums are known to thoseskilled in the art, and are intended to be included within the scope ofthe present invention.

[0048] A computer software application may be used to manage theauction. The software application may include two components: a clientcomponent 31 and a server component 23. FIG. 3 illustrates a servercomponent 23 and a client component 31 resident in host computers in afirst embodiment. As may be seen in FIG. 3, the server component of thatembodiment includes an operating system 24, competitive bidding event orauction communication software 26, and Internet protocol software 27.The server software is hosted on a computer 20 having a processor 21,random access memory 22, and a data storage facility 23. The hostcomputer 20 also includes input and output devices 29 such as, forexample a monitor, printer, mouse and keyboard, and a communicationsinterface 28 for communicating with the client component 31. The clientcomponent of the embodiment illustrated in FIG. 3, includes competitivebidding event communication software 37, and Internet protocol software35. The client component software is hosted on a computer 32 having aprocessor 33, random access memory 34, and a data storage facility 36.The host computer 32 also includes input and output devices 39 such as,for example a monitor, printer, mouse and keyboard, and a communicationsinterface 38 for communicating with the server component 23.

[0049] The client component 31 is used by the bidders 30 to make bidsduring the auction, and to receive and display feedback from theauction. The client component may, for example, be a program that isinstalled on a bidder's computer, or it may be software that is accessedand run from a Website. Bids can typically only be submitted using theclient component of the application, thereby ensuring that sponsors 10cannot circumvent the bidding process, and that only invited suppliers30 participate in the bidding. Each computer software application may bestored in a data storage device and executed by a processor such asthose described in connection with FIG. 4 hereinbelow.

[0050] Bids are sent over the communications medium to, for example, theauction coordinator, or where the sponsor 10 is performing auctioncoordination tasks, directly to the sponsor 10. Bids are received by theserver component 23. The client component includes software functionsfor making a connection over the Internet, or other medium, to theserver component. Bids are submitted over this connection and feedbackis sent to connected bidders 30.

[0051] When a bidder 30 submits a bid, that bid is sent to the servercomponent and evaluated to determine whether it is a valid or acceptablebid. Feedback about received bids is sent to connected bidders 30 as isapplicable, enabling bidders 30 receiving feedback to see changes inmarket conditions and plan competitive responses.

[0052] The embodiments described herein utilize an online reverseauction, wherein the present invention is performed by a computerprocessor, as an example in which the present invention may be utilized.In those examples, suppliers 30 bid to supply goods or services to apurchaser 10 and the purchaser 10 typically purchases the goods orservices from the lowest priced qualified bidder 30. It is to beunderstood, however, that the present invention may be used in otherapplications, would not necessarily have to occur online, and may beperformed by other than a computer processor. The present invention mayalso be utilized in connection with auctions other than reverseauctions. For example, the present invention may be advantageouslyutilized with forward auctions, wherein the party offering the highestpriced qualified bid, rather than the lowest priced qualified bid, isawarded the goods or services being sold. In the case of a forwardauction, the “leading bid” is the highest amount offered and the leadingbidder 30 is the purchaser party 10 making that highest offer, while ina reverse auction, the “leading bid” is the lowest amount offered andthe leading bidder 30 is the supplier party 30 making that lowest bid.Similarly, placing a “better bid” in a reverse auction indicates placinga lower bid, while placing a “better bid” in a forward auction indicatesplacing a higher bid.

[0053]FIG. 4 is a diagram illustrating an auction network 70 of thepresent invention for operating an auction, and into which the servercomponent 23 and client component 31 may be incorporated. The auctionnetwork 70 may be divided into three functional sections: a clientaccess network 71, a communications network 73, and a data processingnetwork 76. The client access network 71 may, for example, include oneor more client machines 72 for accessing and communicating with thecommunications network 73. The communications network 73 may include oneor more primary communications servers 74, secondary communicationsservers 75, and directory, login and reporting servers 90. The dataprocessing network 76 may include production servers 77, training andreporting servers 80, reporting and training databases 86, andproduction databases 84. The production servers 77 and training andreporting servers 80 are referred to collectively herein as bid servers77 and 80.

[0054] The client machines 72 may be, for example, personal computersand may be located at each bidder 30 and purchaser site 10 for accessingthe auction. The client machines 72 may access the auction by, forexample, connecting to a web site operated by the party hosting theauction. The client machines 72 may also receive software from thecommunications network 73 that facilitates communications with thecommunications network 73. Each client machine 72 may have a processorthat executes applicable software, and a data storage device that storesapplicable software and other auction data.

[0055] The primary communications servers 74 are utilized to provideinformation to bids 58 received from the client machines 72 to the bidservers 77 and 80, and to provide that bid information from the bidservers 77 and 80 to the client machines 72. The primary communicationsservers 74 may furthermore act as a firewall to prevent direct access tothe bid servers 77 and 80 by the client machines. The secondarycommunications servers 75 act as backups to the primary communicationsservers 74. The secondary communications servers 75 will perform thecommunication functions normally performed by the primary communicationsservers 74 if a failure occurs in the primary communications servers 74,thereby providing redundancy to the auction network 70.

[0056] The directory, login, and reporting servers 90 may perform avariety of functions that may be performed by a single server or includeseparate servers for the various functions. The directory, login, andreporting servers 90 may include a web server that acts as a portal foraccess to the auction network 70. As such, the directory, login, andreporting servers 90 will receive login requests for access to theauction network 70 via, for example, the Internet. The directory, login,and reporting servers 90 may make access decisions as to whether aclient machine 72 is permitted to access the communications network 73.If access is permitted, the directory, login, and reporting servers 90will direct the client machine 72 to the appropriate portion of theauction network 70. The directory, login, and reporting servers 90, mayprovide reports to client machines 72. For example, information fromprior auctions which may be utilized by purchasers 10 to make a decisionas to which bidder 30 will be awarded the sale and to permit thepurchaser 10 to consider the way in which the auction proceeded so thatfuture auctions may be refined.

[0057] The production servers 77 run the bidding software thatfacilitates the auction process such as, for example, the softwareillustrated in FIGS. 5, 6 and 7. The production servers 77 maycommunicate with client machines 72 through primary and secondarycommunications servers 74 and 75. The production servers 77 may also beredundant so that if a failure occurs in the production server 77 thatis being utilized in an auction event, the redundant backup productionserver 77 may perform the functions of the failed production server 77and, thus, prevent failure of the auction.

[0058] The training and reporting servers 80 operate in a manner similarto the production servers 77 and provide reports for auctions. It isuseful to operate test auctions to test the operating systems and totrain personnel and clients. Such testing may be performed on theproduction servers 77 or, to prevent any degradation of system operationin actual auctions, one or more separate training servers may beutilized for testing and training. Reporting may also be accomplished onthe production servers 77 or the report creation functions may beoffloaded to one or more reporting servers 80. The reporting servers 80may furthermore be combined with the training servers 80.

[0059] Each server 74, 75, 77, 80, and 90 may have a processor thatexecutes applicable software, and a data storage device that storesapplicable software and data. It should be noted that, although thepresent invention is described in terms of a server component and aclient component, one skilled in the art will understand that thepresent invention is not limited to a client/server program relationshipmodel, and may be implemented in a peer-to-peer communications model orany other model known to those skilled in the art.

[0060] Data related to auctions may furthermore be held in one or morestorage devices. The data storage devices may, for example, be amagnetic storage device, a random access memory device (RAM), or a readonly memory device (ROM). The data may include pre-auction data, postauction data, and data that is related to active auctions. Pre-auctiondata may include, for example, suppliers 30 that are permitted to bid ona particular auction and the scheduled auction starting and endingtimes. Post auction data may include the bids and bid times received ina particular auction and reports displaying that data in user friendlyformats. Active auction data may include data received from the bidders30 as the auction is taking place and related data such as the rank ofeach bidder 30.

[0061] The “rank” of the bidders 30 is generally determined by comparingthe lowest amount bid by each bidder 30 and ordering the bidders 30according to those lowest bids. The bidder 30 ranked first is the bidder30 that has bid an amount lower than any other bidder 30 in a reverseauction. The last rank may be a rank equal to the number of bidders 30who have submitted bids in the auction. In the case of tie bids betweenbidders, the last rank may be a rank equal to the number of unique bidsby each bidder. In a reverse auction based on price only, the bidder 30having that last rank is the bidder 30 that has submitted the highestamount.

[0062] Of course, there are many known ways to calculate rank, and anyof those may be used in connection with the subject invention, and areintended to be within the scope of the present invention. The bidders 30are generally ranked between first and last according to the amounts oftheir lowest submitted bids in a reverse auction. Thus, a higher, orbetter ranked bidder 30 in a reverse auction is a bidder 30 who hasplaced a comparatively lower bid, while a higher, or better rankedbidder 30 in a forward auction is a bidder 30 who has placed acomparatively higher bid.

[0063] An auction may alternately be based on one or more factors otherthan price, such as quality, delivery factors, and/or other factors thatare referred to herein collectively as “total value.” Thus, rank mayalso be based on factors other than price, including total value and anyother factor that is useful in an auction setting. A bid or bid amountis a value that is submitted by each participating bidder 30 forcomparison to the bids of other bidders 30, and may likewise be based ona variety of bid factors that are considered important to the bidparticipants. Those factors may include, for example, price, quality,other costs such as delivery costs, or a total value. Bids may also beplaced in a number of ways including, for example, absolute total value,or comparative value such as bidding in relation to an index price.

[0064] Three databases, or groupings of databases, are incorporated intothe auction network illustrated in FIG. 4. The production databases 84hold data that will be used by or is received from the productionservers 77, while the reporting and training databases 86 hold data thatwill be used by or is received from the training and reporting servers80.

[0065] The directory, login, and reporting servers 90 illustratedprovide a web portal for the client machines 72. The directory, login,and reporting servers 90 provide an initial contact point for the clientmachines 72, access to auctions in which the client machine 72 ispermitted to participate, and reports relating to active and closedauctions.

[0066] One skilled in the art will recognize that certain components ofthe network described herein, while beneficial to an auction network,are not necessary components in an operational auction network. Forexample, the secondary communications servers 75 could be removed wherethe benefit of redundancy is not desired, and the primary communicationsservers 74 could be removed and the client machines 72 could communicatedirectly with the bid servers 77 and 80.

[0067] The present invention permits a sponsor 10 conducting more thanone auction to base the conduct of a subsequent auction on one or moreoccurrences in a previous auction. In one embodiment, the presentinvention includes a method of conducting an auction in at least tworounds. In that embodiment, a subsequent round of auction is conductedin accordance with a rule, that is defined prior to a preceding round ofauction and is based on one or more occurrences in the preceding auctionround. During or after the preceding round of auction, the occurrencesare considered in light of the rule, and a subsequent auction round isthen conducted utilizing the rule. The present invention may, forexample, be executed on the auction network 70, or may be operatedmanually or in connection with other known mechanisms.

[0068] Each auction round may be viewed as a separate auction whereinidentified goods or services are placed for auction, bidders 30 placebids to purchase or sell the identified goods or services, a predefinedperiod elapses after which the auction terminates and, typically, acontract is awarded for the sale of the identified goods or services.Furthermore, a contract is typically awarded to the lowest biddingsupplier or the highest bidding purchaser, depending on whethersuppliers or purchasers are bidding in the auction.

[0069] A sponsor 10 may wish to conduct an auction in several rounds fora variety of reasons including, for example, the need to purchase moregoods than may be supplied by the bidders 30 or a desire to learn froman early auction round and make alterations in subsequent rounds. Incertain circumstances, it is beneficial to award contracts to multiplebidders 30 in multiple rounds rather than awarding contracts to thelowest bidders 30 in a single auction round because market or biddingdynamics will cause total bid prices to be lower when bidding inmultiple rounds. For example, where multiple contracts will, or arelikely, to be awarded from a single auction, a bidder 30 may place bidsthat maintain that bidder 30 in second or higher rank, knowing that itwill be awarded a contract at a higher price in spite of not being thelowest bidder. Bidding in rounds may beneficially diminish the practiceof bidding for second or higher rank, because only the first ranked orlowest bidder is awarded a contract in each round.

[0070]FIG. 5 is a flow diagram 200 illustrating an embodiment of thepresent invention wherein a purchasing sponsor 10 desires to purchase alarge quantity of goods, and wherein a second auction round will includequalifying bidders 30 from a first auction round. At 202, the sponsor 10will typically prepare a request for quote (“RFQ”) describing the goodsto be purchased. At 204, that RFQ is provided to potential bidders 30.Each potential bidder 30 that desires to participate in the auction maythen respond to the RFQ at 206. The potential bidder 30 will typicallyrespond by indicating the desired goods that bidder 30 is willing toprovide, the quantity and quality of the goods that the bidder 30 canprovide, and conditions under which the bidder 30 can provide thosegoods in those quantities and qualities. Those conditions may includethe time period during which the identified goods may be provided. In acertain circumstance, none of the potential bidders 30 may be able toprovide the desired quantity of goods in the desired time period. Inanother circumstance certain bidders 30 may be able to provide theentire desired quantity of goods, while other bidders 30 cannot providethe entire quantity desired. In the latter circumstance, the sponsor 10may wish to permit those potential suppliers 30 that cannot provide theentire quantity of goods to participate in one or more rounds of theauction, for example, to assure that a minimum number of bidders 30participate in the auction, or because they are preferred suppliers 30.

[0071] The sponsor 10 may wish to contract for all of desired goods orservices at one time despite of the inability of all bidders 30 toprovide all desired goods or services. Thus, the sponsor 10 may chooseto award contracts to multiple low bidders 30 or may conduct multiplerounds of bidding and award contracts to the lowest bidder 30 in eachround until the total quantity of goods desired has been purchased. Ifthe sponsor 10 desires to conduct bidding in rounds, at 208, the sponsor10 may formulate a rule conditioning the inclusion of a bidder 30 in asubsequent auction round on that bidder 30 having not been awarded acontract in a preceding round. That rule may or may not be expressed topotential bidders 30 before the opening of, or during, a given auctionround. Thus at 210, the sponsor 10 may conduct a first round auction,the outcome of which is an award of a contract to the lowest bidder 30at 212. The sponsor 10 will then apply the rule that awarded bidders 30may not participate in subsequent rounds to an appropriate occurrence inthe first round of the auction at 214. In the present example, the ruleis applied to the outcome and, more specifically, to the awarded bidder30, to determine participation in the second auction round. Thus, in theexample of FIG. 5, the bidder 30 that is awarded a contract in the firstauction round may not participate in the second auction round. At 218,the sponsor 10 will determine whether additional goods or servicesshould to be purchased at that time, and if an additional purchase is tobe made, an additional auction round will be conducted. The sponsor 10will repeat the process of conducting an auction round at 210, awardinga contract at 212, applying the rule to the outcome at 214, anddetermining whether another auction round should be conducted at 218.Thus, the contract that is awarded each round may, for example, cover aportion of the entire quantity of goods or services desired to bepurchased in the auction.

[0072] When more than two rounds of bidding are contemplated, under thecircumstances described in connection with FIG. 5, the sponsor 10 maycondition participation in subsequent rounds on having not received anaward in any preceding round. Thus, the sponsor 10 may subtract theamount of goods purchased thus far in the auction from the amount ofgoods needed to determine whether additional goods need to be purchasedat 218. If additional goods need to be purchased, the sponsor 10 willtypically return to 210 and conduct an additional auction round thatdoes not include successful bidders 30 from previous rounds. The sponsor10 will then repeat the process of conducting an auction round at 210,awarding a contract at 212, applying the rule to the outcome at 214, anddetermining whether another auction round should be conducted at 218,until no further auction rounds are necessary.

[0073]FIG. 6 illustrates an embodiment of the present invention, whereina purchasing sponsor 10 has little experience with electronic auctions,at least in connection with goods to be purchased at that time, andwherein the sponsor 10 will conduct a second auction round includingqualifying bidders 30 from a first auction round. Such a sponsor 10 maywish to learn from an early auction round and make alterations insubsequent rounds. As in the example illustrated previously in FIG. 5,the sponsor 10 prepares an RFQ at 302 and provides that RFQ to potentialbidders 30 at 304. At 306, the potential bidders 30 respond to the RFQ.In the specific embodiment illustrated in FIG. 6, the sponsor 10 isinterested in determining which bidders 30 will actively participate inan initial auction round. Therefore, the sponsor 10 will initiate afirst auction round for purchasing a portion of the total goods to bepurchased in the auction. Prior to conducting the first auction round,however, the sponsor 10 will create a rule at 308 for including a bidder30 in a subsequent auction round that is based on an occurrence in thefirst auction round. That rule may or may not be expressed to thepotential bidders 30. The rule utilized in the example depicted in FIG.6 limits inclusion in subsequent auction rounds to bidders 30 ranking inthe top three bidders 30 in the first auction round. Thus, only the topthree bidders 30 in the first auction round will be permitted toparticipate in subsequent auction rounds. Reasons for limiting thenumber of bidders 30 include, but are not limited to, a desire tominimize the number of entities that may view the auction to protectprivacy, and to remove bidders 30 who are unlikely to be competitive.Other rules that may be utilized include, but are not limited to,permitting only those bidders 30 that place a minimum number of bids toparticipate subsequently, allowing only those bidders 30 whose best bidsfall within a certain number or percentage of dollars or other units ofthe leading bid to participate in subsequent auction rounds, and/orallowing only non-leading bidders (i.e., bidders that did not win anaward in a previous round) to participate in a subsequent round.

[0074] After the rule has been formulated, an auction round will beconducted at 310. At 314, the rule is applied to the appropriateoccurrence or occurrences of the first auction round to select, in theexample provided in FIG. 6, the three lead bidders 30 for participationin the next auction round. At 318, a determination is made as to whetheranother auction round is to be conducted. If another auction round is tobe conducted, the sponsor 10 will repeat the process of conducting anauction round at 310, applying the rule to the outcome at 314, anddetermining whether another auction round should be conducted at 318,until no further auction rounds are necessary. It is noted that a ruleformulated in, for example, a first round auction, may be applied to oneor more subsequent auction rounds. Furthermore, additional rules may bedeveloped in rounds subsequent to the first round. Thus a single rule,formulated during or after the first auction, may, for example, be theonly rule applied to subsequent auction rounds. Alternately, one or morerules formulated in preceding rounds may be applied in varyingcombinations to subsequent auction rounds. Also, in multiple roundauctions, no rule may be applied to certain rounds.

[0075] Various forms of auctions may also be utilized in differentrounds in the present invention. For example, a purchasing sponsor 10may conduct a sealed bid type first round auction, wherein each bidder30 submits a single bid to the sponsor 10 in a sealed envelope. Thesponsor 10 then opens all of the bids at a prearranged time. The sponsor10 may select a winning bidder 30, usually on the basis of the lowestbid submitted, at that time, or the sponsor may use the sealed bidssolely to make a decision as to how the second round auction will beconducted. The second round auction could then be, for example, anelectronic auction in which only bidders 30 qualifying in the firstround auction are permitted to participate. For example, in a certainauction a first round sealed bid is used to determine which bidders 30qualify to participate in a second round auction to follow.

[0076] In another embodiment, wherein similar or identical goods orservices are purchased in both the first and second rounds, the firstround price is utilized as an initial and/or ceiling bid for each bidder30 in the second round. Where the sealed bid is utilized as an initialand a ceiling bid, the sealed bid price submitted by each bidder 30qualifying to participate in the second round auction is entered as aninitial bid for that bidder 30 at the beginning of the second roundauction and bidders 30 are not permitted to place bids greater than thatinitial ceiling bid throughout the second round auction. Of course, theinitial ceiling bid may also be utilized in additional rounds subsequentto the second round. Furthermore, as may be seen in the previousexample, multiple rules may be formulated from one or more auctionrounds and those rules may determine which bidders 30 qualify toparticipate in future rounds, bidder 30 initial bid pricing, and/orceiling bid level for each bidder 30. As will be recognized by oneskilled in the art, any of a variety of decisions that may be based onprior bidding history may also be considered when determining rules andconditions for subsequent auction rounds. For example, the quantity ofgoods to be auctioned in a round may be determined by pricing levelsachieved for various quantities in previous rounds or quantities offeredby bidders in previous rounds.

[0077] In certain circumstances, a purchasing sponsor 10 may desire topurchase goods from two or more suppliers 30. In such a situation, asingle supplier 30 may be able to provide the entire quantity of goodsdesired. Multiple bidders 30, furthermore, typically do not place equallow bids. Thus, there may be a financial benefit to the sponsor 10 topurchase all goods from the lowest bidding supplier 30. The sponsor 10may, however, desire to purchase goods from multiple bidders 30, forexample, to assure a steady supply of goods where the sponsor 10envisions a likelihood that one supplier 30 may, for example, haveproduction problems that interrupt delivery of a critical component. Thesponsor 10 may, therefore, wish to award contracts to multiple lowbidders 30 or may conduct multiple rounds of bidding and award contractsto the lowest bidder 30 in each round until the total quantity of goodsdesired has been purchased.

[0078] An embodiment of the present invention, wherein the sponsor 10wishes to purchase a good from two suppliers 30 in two auction rounds toassure a steady supply of that critical good, is described withreference to FIG. 5. In that embodiment, that critical good is anecessary component for operation of many products manufactured by thesponsor 10. Furthermore, the sponsor 10 has previously experiencedshortages of the critical good because a single supplier 30 hadencountered production problems. Thus, the sponsor 10 wishes to purchasebetween 50% and 70% of the expected supply of the critical good that thesponsor 10 will need over the next year from a single bidder 30 in afirst round auction. The sponsor 10 wishes furthermore to purchase theremainder of the critical good that it will need over the next year froma different single bidder in a second round auction.

[0079] The critical good embodiment will be further described withreference to FIG. 5, and the critical good will be assumed to be anintegrated circuit. Thus, at 202 of FIG. 5, the sponsor 10 prepares anRFQ stating its integrated circuit requirements including the quantityof integrated circuits that are projected to be needed over the nextyear, and a requirement that any participating bidder 30 must be able toprovide at least 50% of the total quantity needed over the next year.The sponsor 10 also provides an optional statement in the RFQ informingthe bidders 30 that the auction will be conducted in two rounds and only50% to 70% of the total integrated circuit requirement will be purchasedfrom the successful bidder 30 in the first auction round. The RFQ isprovided to potential suppliers 30 at 204 and the potential suppliers 30respond to the RFQ at 206. As previously discussed in connection withFIG. 5, the sponsor 10 formulates a rule conditioning the inclusion of abidder 30 in a subsequent auction round on that bidder 30 having notbeen awarded a contract in a preceding round. Thus, as desired, thebidder 30 awarded a contract in the first auction round will notparticipate in the second auction round, and so may not be awarded anadditional contract in the second auction round. At 210, the sponsor 10conducts a first round auction, the outcome of which is an award of acontract to the lowest bidder 30, at 212. That bidder 30 may be given anoption at the time of the award to select the quantity of integratedcircuits that it will provide under the contract, with the constraintsthat the awarded bidder 30 must provide between 50% and 70% of the totalrequirements. Alternately, the awarded bidder 30 may state the maximumquantity of integrated circuits that it can provide prior tocommencement of the auction and be awarded the lesser of that maximumquantity or 70% of the sponsor requirement, for example. The contractedquantity of goods may also be provided by utilizing any other knownmethod of making such a determination. The sponsor 10 will then applythe rule that awarded bidders 30 may not participate in subsequentrounds to the second auction round at 214, and conduct a second auctionround accordingly. The winning bidder 30 in the second auction roundwill then be awarded a contract for the remaining quantity of goodsrequired by the sponsor 10.

[0080] In another embodiment of the present invention, multiple biddersmay be awarded contracts after a single auction round. In thatembodiment, the amount of the total requirements awarded to each bidder30 receiving a contract may be a function of the difference between thebids placed by the awarded bidders. As was previously discussed, in sucha circumstance a bidder 30 may bid to achieve a rank of second, forexample, rather than first, knowing that as the second place bidder 30they are likely to make a sale in the auction. Thus, the second rankedbidder 30 may not have an incentive to approach the first place bidder30 but rather may be encouraged to place the highest second place bidpossible. Of course, in auctions wherein more than two bidders 30 are tobe awarded contracts in a single auction round, bidders 30 may likewisebid for third rank or fourth rank or any other rank that is likely to beawarded a contract. Such a circumstance is undesirable from theperspective of a sponsor 10. A sponsor 10 in, for example, a reverseauction will typically desire that bidding suppliers 30 reduce theirbids to the lowest possible amount. By awarding one or more contracts tobidders 30 ranked other than first, however, a sponsor 10 may reduce theincentive for a bidder 30 to place a bid that will surpass the firstranked bidder. Furthermore, the lead bidder generally has no incentiveto improve a leading bid because, as lead bidder, that party wouldnormally be awarded a contract regardless of the difference between theleading bid and the second ranked bid. Thus, the present inventionprovides incentive, in cases where multiple bidders may be awardedcontracts from a single auction round, for a first ranked bidder tobetter a first ranked bid and for a lower ranked bidder to place animproved bid even if that bid is not adequate to improve the rank ofthat bidder.

[0081] The present invention provides incentive for leading bidders toimprove their bids in such cases by tying the volume of goods orservices awarded to each bidder 30 to the difference between thoseleading bids. For example, as described in the previous example, thesponsor 10 may wish to purchase 50% to 70% of its requirements; from thelowest, or first ranked bidder, and the remaining portion of itsrequirements from the second lowest, or second ranked bidder. Thesponsor 10 may, however, wish to award contracts to the two leadingbidders in a single auction round. The sponsor 10 may, therefore, varythe volume of the award to the first ranked bidder from 50% to 70%depending on a factor that may be related to the difference between thefirst ranked bid and the second ranked bid compared to a desireddifferential bid amount. That desired differential bid amount may,furthermore, be a maximum amount by which the sponsor 10 contemplatesthat the first ranked bidder may better the second ranked bidder.

[0082]FIG. 7 illustrates an embodiment of the present invention whereintwo bidders are to be awarded contracts in a single auction round 400.At 402 through 410, the sponsor 10 prepares a calculation fordetermining the volume of awards that will be made to successfulbidders. In this example, that calculation includes determining themaximum and minimum volumes to be awarded to the leading successfulbidder at 402 and 404. That leading successful bidder is typically thelowest bidder in a reverse auction and the highest bidder in a forwardauction. It will be recognized, however, that the lowest bidder in areverse auction may be disqualified or not awarded a contract foranother reason and that the leading successful bidder may be other thanthe lowest bidder. Likewise, it will be recognized that the highestbidder in a forward auction may be disqualified or not awarded acontract for another reason and that the leading successful bidder maybe other than the highest bidder. Once the minimum and maximum volumeshave been determined, the sponsor 10 may calculate the volumedifferential by subtracting the minimum volume from the maximum volume.

[0083] The sponsor 10 will also determine a range of differential in thebest bid placed by the leading successful bidder, or first rankedbidder, and the second ranked qualified bidder. In this example, thehighest bid differential that the sponsor 10 wishes to consider indetermining how much volume will be awarded to the bidders 30 isestablished at 406 and the lowest bid differential that the sponsor 10wishes to consider in determining how much volume will be awarded to thebidders 30 is established at 408. The bid differential (expressed, forexample, in dollars/unit) may be calculated by subtracting the low biddifferential from the high bid differential. The volume and biddifferential values may then be utilized in formulating a calculationfor the volume that will be awarded to the bidders 30 at 410.

[0084] Thus, for example, the first ranked bidder may be awarded acontract for a minimum amount to be awarded to the first ranked bidderplus an additional amount related to the difference between the firstand second ranked bids. As may be seen at 410, the additional amount maybe calculated by finding the difference between the maximum volume to beawarded to the first ranked bidder and the minimum volume to be awardedto the first ranked bidder and multiplying that by a factor between zeroand one. The factor may furthermore be related to the difference betweenthe best bid placed by the first ranked bidder and the best bid placedby the second ranked bidder. Thus, when calculating an award amount interms of percent of the total amount to be awarded, the equation mayappear as:

A=MinA+BDF(MaxA−MinA)

[0085] wherein:

[0086] A is the actual percent of total required volume to be awarded tothe first ranked bidder;

[0087] BDF is the bid differential factor;

[0088] MinA is the minimum percent of total required volume to beawarded to the first ranked bidder; and

[0089] MaxA is the maximum percent of total required volume to beawarded to the first ranked bidder.

[0090] The bid differential is typically a factor that is based on thedifference between the first and second ranked bids. When aproportionate factor is desired, the bid differential factor may, forexample, be equal to the actual bid differential that results from theauction, divided by the difference between an expected high biddifferential and an expected low bid differential. Thus, the equationmay appear as:

BDF=ActBD/(HiBD−LoBD)

[0091] wherein

[0092] ActBD is the actual bid differential resulting from the auction,e.g., the difference between the best bid (in dollars/unit) placed bythe first ranked bidder and the best bid (in dollars/unit) placed by thesecond ranked bidder;

[0093] HiBD is the highest expected bid differential; and

[0094] LoBD is the lowest expected bid differential.

[0095] For example, the sponsor 10 in a reverse auction may concludethat if the first ranked bid is at least $100.00 per unit less than thesecond ranked bid, the sponsor 10 will award 70% of its totalrequirement to the first ranked bidder. Furthermore, if the first andsecond ranked bids are equal, the sponsor 10 will award one half of thetotal requirement to each of those bidders. Thus, where the sponsor 10wishes to award 50% of its total requirement to the first ranked bidderwhen the actual bid differential is $0.00 and 70% to the first rankedbidder when the actual bid differential is $100.00, the bid differentialfactor (BDF) would be determined as follows:

BDF=ActBD/(100−0).

[0096] Continuing with this example, the values of MinA and MaxA wouldbe 50% and 70%, respectively, since the most the sponsor wishes to awardto the first ranked bidder is 70% of its requirement and the least thesponsor wishes to award to the first ranked bidder is 50% of itsrequirement. In this example, if the first ranked bidder places a bestbid that is $50.00 per unit less than the best bid of the second rankedbidder, the bid differential factor would be:

BDF=50/(100−0)=0.5

[0097] and the award to the first ranked bidder would be:

A=50%+0.5(70%−50%)=60% of the sponsor's requirement

[0098] Because the sponsor 10 in this example wishes to award contractsto the top two bidders, the second ranked bidder would be awarded theremaining requirement. That remaining requirement, in the presentexample, would be the total requirement, or 100%, less the amountawarded to the first ranked bidder, or 60%, conferring an award of 40%of the total requirement of the sponsor 10 to the second ranked bidder.

[0099] Alternately, if the first ranked bidder had actually placed abest bid $20.00 per unit under the best bid of the second ranked bidder,the bid differential factor would be:

BDF=20/(100−0)=0.2

[0100] and the award to the first ranked bidder would be:

A=50%+0.2(70%−50%)=54% of the sponsor's requirement

[0101] Again, the second ranked bidder would be awarded the remainingrequirement, which would be the total requirement, or 100%, less theamount awarded to the first ranked bidder, or 54%. Thus, an award of 46%of the total requirement of the sponsor 10 would be made to the secondranked bidder.

[0102] If the first ranked bidder had actually placed a best bid of$75.00 per unit under the best bid of the second ranked bidder, the biddifferential factor would be:

BDF=75/(100−0)=0.75

[0103] and the award to the first ranked bidder would be:

A=50%+0.75(70%−50%)=65% of the sponsor's requirement

[0104] Once again in this example, the second ranked bidder would beawarded the remaining requirement, which would be the total requirement,or 100%, less the amount awarded to the first ranked bidder, or 65%.Thus, the sponsor 10 would award 35% of the total requirement to thesecond ranked bidder.

[0105] As may be seen in this example, the greater the differentialbetween the first and second ranked bids, the greater the amount that isawarded to the first ranked bidder. Therefore, the first ranked bidderis provided an incentive to reduce its already first ranked bid toincrease the amount of goods or services that it will be awarded.Similarly, the second ranked bidder is provided with an incentive toreduce its bid, even if that reduction will not cause that bidder to beranked first, to decrease the amount that the first ranked bidder willbe awarded and, thereby, increase the amount of the award to that secondranked bidder. Of course, the second ranked bidder may also place a bidthat moves it to the first rank, thereby further increasing the amountof the award to that bidder.

[0106] The ratio example provided above is based on a percentage oftotal requirement to be awarded to certain bidders 30. The award may,however, have another basis such as, for example, the quantity of goodsto be awarded to each bidder 30.

[0107] As will be recognized, contracts may be awarded to more than twobidders 30 in a single auction round. In an auction where more than twobidders 30 are to be awarded contracts, a calculation for the volume tobe awarded to second and lower ranked bidders 30 may be calculatedutilizing steps similar to those described in steps 402 through 410 ofFIG. 7. When calculating the volume to be awarded to a second rankedbidder, the maximum volume of step 402 would be the maximum volume to beawarded to the second ranked bidder. Similarly, the minimum volume ofstep 404 would be the minimum volume to be awarded to the second rankedbidder. The highest bid differential of step 406 would typically be thehighest expected or desired differential between the second rankedbidder and the next lower, or third ranked, bidder and the lowest biddifferential of step 408 would typically be the lowest expected ordesired differential between the second ranked bidder and the next lowerbidder. As may be appreciated, the third and fourth ranked bidders couldbe compared to establish parameters for a third ranked bidder wherenecessary and subsequent ranked bidders may also have volume awardsdetermined accordingly.

[0108] The minimum and maximum amounts to be awarded to each bidder 30may be any amounts and will likely vary depending on the number ofbidders 30 with which the sponsor 10 wishes to contract in the auctionround and the capacity of the bidding suppliers 30. For example, wheretwo bidders 30 are to be awarded contracts in a single auction round,the lowest bidder will normally be awarded at least one-half of thetotal award because that bidder will supply the goods or services at aprice that is less than (or at least equal to) the second ranked bidder.

[0109] Thus, a minimum award of 50% to the lowest bidder would be commonin an auction wherein two bidders 30 are to be awarded. Similarly, in anauction wherein three bidders 30 are to receive awards in a singleauction round, the lowest bidder will typically receive an award for atleast one-third of the total requirement.

[0110] Supplier specific low and high volume limits may also be set. Afactor that may be considered when determining a minimum award, forexample, is the capacity of the bidding suppliers 30. In certaincircumstances, such as when the lowest bidder is unable to produce themaximum amount of product that the sponsor 10 would like to purchasefrom that bidder, the volume for that bidder may be limited to thecapacity of that bidder. The sponsor 10 may also wish to limit aparticular supplier to a maximum volume when the sponsor 10 has not hadadequate experience with or is otherwise uncomfortable with thatsupplier. The volume may be expressed in a variety of units including,for example, a number of products to be provided, a number of hours tobe expended performing a service, or as a percentage of a totalrequirement.

[0111] The number of awards resulting from a single auction round may,therefore, be variable and may in certain circumstances not bedetermined until after the auction is closed. For example, the number ofbidders 30 that receive awards may be adjustable to assure that thetotal quantity of goods or services desired may be purchased where thebidding suppliers have limited capacity.

[0112] Thus for example, where a first ranked bidder has placed a bid atwhich the sponsor 10 would be willing or desirous to award 70% of itsrequirement to that bidder, but that bidder has informed the sponsor 10that it only has the capacity to provide 60% of the requirement, only60% of the requirement may be awarded or allotted to that bidder.Allotted business volume is a volume that is calculated during an openauction that is currently in progress, and indicates the quantity ofgoods or services that would be awarded to each bidder 30 if the auctionwere to close at that time.

[0113] As for the maximum award, that amount is usually determined basedon various desires of the sponsor 10. For example, a sponsor 10 maybelieve that purchasing more than 70% of its critical component supplyfrom a single source places the sponsor 10 at risk for encountering ashortage of components that might affect the production of the sponsor10. Therefore, the sponsor 10 may limit the maximum amount to be awardedor allotted to the first ranked bidder to 70%.

[0114] The sponsor 10 may prepare an RFQ at step 412 and may includeinformation therein regarding volume determinations. At 414, the sponsor10 may provide the RFQ to potential bidders 30, thereby informing thebidders 30 that the amount of goods to be awarded to the first rankedbidder will be, in this example, between 50% and 70% of the totalrequirement. Furthermore, the sponsor 10 may inform the bidders 30through the RFQ that the determination of the quantity of goods orservices to be awarded to the first ranked bidder will depend on thedifferential between the amount of the best bid placed by the firstranked bidder and the amount of the best bid placed by the second rankedbidder. Where two or more bidders 30 are to be awarded contracts in asingle auction round, the sponsor 10 may inform the bidders 30 of thatfact and apprise the bidders 30 of how the volume calculations will bemade for awards at each level.

[0115] The potential bidders 30 typically respond to the RFQ byinforming the sponsor 10 of any information requested in the RFQ. Thatinformation may include the quantity of goods or services that thesupplier is capable of providing to the sponsor 10. The sponsor 10 maythen arrange the auction parameters, including the volume to be awardedto leading bidders, and initiate the auction at 418. During the auction,bids are accepted at 420. Also, in this embodiment of the auction, whichprovides market feedback to stimulate further bidding, market feedbackincluding the volume allotted to the bidders 30 if the auction closedunder the current conditions is displayed to the bidders 30 at 424. Thedisplayed market feedback may also include other information including,for example, bid amounts that have been placed by each bidder 30. Thedisplayed market feedback may furthermore be provided or not provided atvarious times during the auction depending on conditions existing in theauction. For example, allotted business volume may not be displayeduntil enough valid bids have been placed to have 100% of the requirementallotted to bidders 30. Thus, when only one bid has been placed and twobidders 30 are to be awarded contracts, the allotted business volume maybe withheld from display until a valid bid is placed by a second biddersuch that all of the requirement of the sponsor 10 would be allotted atthat time.

[0116] The allotted volume may furthermore be displayed to only thebidder 30 to which the volume applies, all participating bidders 30 or asubset of bidders 30. As examples of displaying allotted volume to asubset of bidders 30, the volume feedback may be displayed to bidders 30that are allotted a volume themselves, or bidders 30 that have placed abid that surpasses a predefined threshold. As may be appreciated, avariety of requirements could be placed on receipt of feedback. Byproviding such market feedback, the bidders 30 are informed of thevolume that they will be awarded if no other bids are, placed, and arereminded that if they improve their bids they can increase the volume ofbusiness that they will be awarded.

[0117] A volume that would be allotted to a bidder 30 if that bidder 30improved its bid may also be calculated and displayed. That volume wouldbe based on the current bids placed by all other bidders 30 and a newbid that the viewing bidder 30 is considering placing. That volume wouldtypically be displayed only at the viewing bidder console to providefeedback to the bidder 30 as to the quantity of goods or services thatwould be awarded to the viewing bidder 30 if it improved its bid. Thus,a bidder 30 may enter a bid that it is considering placing in, forexample, a bid entry window on a computer screen, by selecting thatwindow with an input device such as, for example, a mouse or keyboard,and entering a number therein. The bidder 30 may then select a“calculate volume” facility which may, for example, take the form of abutton that may be depressed or selected, and that may be displayed onthe screen of the bidder 30. Selection of that facility after entry of avalid bid in the bid entry window will provide the bidder 30 withfeedback as to the volume of business that would be allotted to thatbidder 30 if that bid is placed.

[0118] A sponsor 10 may furthermore vary the volume it is purchasingdepending upon the bids received in an auction. For example, a sponsor10 may estimate that it will require at least a quantity of 100,000components to supply its production line or the next year. The sponsor10 may also realize that it could produce enough product to consume120,000 components during the next year. The sponsor 10 may also realizethat it will be able to sell more product if it is able to produce andsell the product at a lower price. Thus, if the sponsor is able topurchase the component at or below a certain price, the sponsor 10 willpurchase more components and plan to manufacture more products. Thesponsor 10 may, therefore, provide that if one or more of the bidders 30that will be awarded contracts places a bid below a bid threshold, thevolume to be purchased will step up. The sponsor 10 may furthermoreincorporate multiple steps for varying levels of bids received.Alternately, the sponsor 10 may utilize an algorithm that varies thevolume of the component to be purchased proportionately over a range ofbids. It will be recognized that many algorithms may be utilized toadjust the volume of an auction dependent on bid amounts, all of whichfall within the scope of the present invention.

[0119] The present invention may also incorporate a combination ofawarding contracts to multiple bidders 30 in a single auction round andconducting multiple auction rounds. For example, a sponsor 10 may wishto award contracts for a component to two bidders 30 in a first auctionround and also base participation in a second auction round for anothercomponent on an occurrence during the first round.

[0120]FIG. 8 illustrates another embodiment of the present inventionwherein two bidders are to be awarded contracts in a single auctionround 450. A minimum volume of goods or services to be awarded to thebetter ranked bidder being compared is determined at 452. A biddifferential factor is established at 454 and a formula is created at456. An RFQ is prepared at 458 and provided to potential bidders at 460.At 462, the potential bidders respond to the RFQ and auction timing andoperational parameters are established. The auction is initiated at 464and bids are accepted at 466 after the auction assumes its open state.The actual difference between the bids that are being compared iscalculated at 468 and the volume allotted to each applicable bidder iscalculated at 470. The volume allotted is calculated for the betterbidder by use of the equation provided in step 456 with the actual biddifferential entered therein. The volume allotted to the other biddermay, for example, be the remaining volume to be awarded or may becalculated by comparing that bidder to yet another bidder by use, forexample, of the equation of step 456. Market feedback is provided at 472and at 474, a determination is made as to whether the auction should beclosed. If the auction is to be closed, bidding ends and if the auctionis not to be closed, additional bids are accepted at 466.

[0121] In an example based on the embodiment illustrated in FIG. 8, thevolume to be awarded to the better ranked bidder which, in this exampleis the first ranked bidder, is equal to a minimum volume plus a factorbased on the price differential between the first and second rankedbidder. Thus, the equation utilized in this example is the equationillustrated in step 456 of FIG. 8.

A=MinA+BDF*ActBD

[0122] wherein:

[0123] A is the actual percent of total required volume to be awarded tothe first ranked bidder;

[0124] MinA is the minimum percent of total required volume to beawarded to the first ranked bidder;

[0125] BDF is the bid differential factor; and

[0126] ActBD is the actual differential between the bids of the firstand second ranked bidders in percent.

[0127] Of course, the minimum volume would not have to be added to thefactor in all equations. Rather, the minimum volume to be awarded couldbe calculated directly by an award volume formula if so desired.Similarly, the volume may be based on a price differential between anytwo or more bidders of any rank desired.

[0128] In this example, the volume awarded is based on the differencebetween actual bids of the bidders being compared, which is referred toin FIG. 8 as the “actual bid differential.” Those bidders willfurthermore be assumed to be the first and second ranked bidders in thisexample. The bid differential may be a factor of, or a percentage of thebid of either bidder being compared. In the following example, theactual bid differential will be calculated as a percent of the firstranked bid in a reverse auction. Thus at 452, the actual biddifferential is calculated as follows:

ActBD=(B2−B1)/B1*100%

[0129] wherein:

[0130] B1 is the bid of the first ranked bidder; and

[0131] B2 is the bid of the second ranked bidder.

[0132] The bid differential factor in this example is equal to thepercent above the minimum volume that is to be awarded to the firstranked bidder for every percent that the first ranked bid is lower thanthe second ranked bid. Thus, in a scenario wherein. for example, asponsor 10 wishes to award one additional percent of the total volume tothe first ranked bidder for every percent that the first ranked bid islower than the second ranked bid, the bid differential factor would beequal to one. In the same scenario, if the lowest ranked bidder is to beawarded a minimum of 55% of the total volume, the above equation wouldappear as:

A=55%+1*ActBD.

[0133] The bid differential factor of the embodiment illustrated in FIG.8 may be calculated in many ways. One method of calculating the biddifferential is to provide a sponsor with a table of hypotheticaldifferential prices in an auction wherein bids will be in the form ofquoted prices. The sponsor may then indicate a volume to be awarded nextto each hypothetical differential price, wherein that volume is thevolume to be awarded to the first ranked bidder if that differentialprice occurs in an auction. A formula may then be derived to fit thedata points from the table to calculate a ratio of volume to be awardedto differential price. That formula may, for example, be a regressionanalysis and the bid differential may be equal to a value that is theslope of a straight line through the data points as plotted on a chart,wherein one axis of the chart is volume to be added to the minimum awardvolume for the first ranked bidder, and the other axis is differentialprice. The bid differential may alternately be an equation that, forexample, describes a curve through such plotted points.

[0134] While the invention has been described in detail and withreference to specific embodiments thereof, it will be apparent to oneskilled in the art that various changes and modifications can be madetherein without departing from the spirit and scope thereof. Inparticular, it should be noted that while the auction functionsdescribed above have been described in the context of downward pricing(reverse) auctions, the auction functions can be equally applied toupward pricing (forward) auctions. Furthermore, it will be understood byone skilled in the art that the present invention may be utilized inembodiments wherein a sponsor 10 wishes to award contracts to three ormore bidders 30. Thus, it is intended that the present invention coverthe modifications and variations of this invention provided they comewithin the scope of the appended claims and their equivalents.

What is claimed is:
 1. In an electronic auction wherein an award for agiven auction round is allocated amongst a plurality of highest rankedbidders including at least a first ranked bidder and a second rankedbidder, a method for providing an incentive to the first ranked bidderand the second ranked bidder to each improve their respective bidsduring the conducting of the auction, comprising: (A) adopting a formulafor allocating the award amongst at least the first ranked bidder andthe second ranked bidder, wherein a factor of the formula is an actualbid differential between a bid of the first ranked bidder and a bid ofthe second ranked bidder, and wherein application of the formula to bidsof the first and second ranked bidders causes a first portion of theaward allocated to the first ranked bidder to increase, and a secondportion of the award allocated to the second ranked bidder to decreaseas a magnitude of the actual bid differential increases; (B) conductingthe electronic auction; and (C) allocating the award between at leastthe first and second ranked bidders in accordance with the formula andthe bids of the first and second ranked bidders.
 2. The method of claim1 , wherein step (A) further comprises: prior to step (B), determining arange of volume to be allocated to the first bidder; and prior to step(B), formulating the formula based on the range of volume to beallocated to the first bidder and a differential bid range.
 3. Themethod of claim 2 , wherein a sum of the first and second portionsallocated to the first ranked bidder and second ranked bidder,respectively, corresponds to a total volume of the award.
 4. The methodof claim 1 , wherein the plurality of highest ranked bidders includes atleast a third ranked bidder, wherein step (C) further comprises:allocating the award between the first, second and third ranked biddersin accordance with the formula and the best bids of the first, secondand third ranked bidders; wherein a sum of the first and second portionsallocated to the first ranked bidder and the second ranked bidder,respectively, and a third portion allocated to the third ranked biddercorresponds to a total volume of the award.
 5. The method of claim 3 or4 , wherein the total volume is a range of volumes.
 6. The method ofclaim 5 , wherein the total volume varies in relation to a bid placed byat least one bidder.
 7. The method of claim 5 , further comprisingapplying a factor based on at least one bid received during the auctionto a predetermined total volume range to calculate the total volume. 8.The method of claim 1 , wherein the first portion to be allocated to thefirst bidder is a volume of goods.
 9. The method of claim 1 , whereinthe first portion to be allocated to the first bidder is a volume ofservices.
 10. The method of claim 1 , further comprising displayingmarket feedback to at least one bidder during step (B).
 11. The methodof claim 10 , wherein the at least one bidder is a leading bidder. 12.The method of claim 10 , further comprising: allocating volume to atleast two bidders during the auction in accordance with the formula; andwherein the market feedback is provided to all bidders, and includesinformation representing the volume allocated to each of the at leasttwo bidders.
 13. The method of claim 10 , wherein the market feedbackincludes a volume allocated to a given bidder in accordance with theformula.
 14. The method of claim 13 , wherein the volume to be allocatedto the given bidder is provided only to the given bidder during theauction.
 15. The method of claim 13 , wherein the volume to be allocatedto the given bidder is provided to a further bidder during the auction.16. The method of claim 1 , wherein said formula further includes: arange of volume to be allocated to the first ranked bidder equal to adifference between a predetermined minimum volume to be allocated to thefirst ranked bidder and a predetermined maximum volume to be allocatedto the first ranked bidder; a differential bid range that corresponds toa predetermined differential bid amount.
 17. The method of claim 16 ,wherein the predetermined differential bid amount is a maximum amount bywhich an auction sponsor contemplates that the first ranked bidder maybid better than the second ranked bidder.
 18. The method of claim 17 ,wherein the predetermined differential bid amount is formed by:establishing a high differential that is equal to a difference between abid placed by the first ranked bidder and a bid placed by a secondbidder that corresponds to an award of the predetermined maximum volumeto the first bidder; establishing a low differential that is equal to adifference between a bid placed by the first bidder and a bid placed bythe second bidder that corresponds to an award of the predeterminedminimum volume to the first bidder; and subtracting the low differentialfrom the high differential to arrive at the predetermined differentialbid amount.
 19. The method of claim 1 , wherein the formula isdetermined by: calculating a bid differential factor by dividing theactual bid differential by a difference between a highest expected biddifferential and a lowest expected bid differential; multiplying the biddifferential factor by a difference between a maximum amount to beawarded to a first ranked bidder and a minimum amount to be awarded tothe first ranked bidder to arrive at a product; and adding the minimumamount to be awarded to a first ranked bidder to the product.
 20. Themethod of claim 1 , wherein the bidders are electronically coupled to anauction coordinator during the conducting of the auction.
 21. The methodof claim 20 , wherein the bidders submit bids to the auction coordinatoronline during the conducting of the auction.
 22. The method of claim 1 ,wherein the auction is a reverse auction.
 23. The method of claim 1 ,wherein the auction is a forward auction.
 24. The method of claim 1 ,further comprising soliciting potential bidders.
 25. The method of claim24 , wherein soliciting potential bidders includes: preparing a requestfor quotation; providing the request for quotation to potential bidders;and requesting that potential bidders respond to the request forquotation.
 26. The method of claim 25 , wherein said request forquotation includes an identification of goods to be purchased.
 27. Themethod of claim 25 , wherein said request for quotation includes anidentification of services to be purchased.
 28. The method of claim 1 ,wherein the first portion to be allocated is expressed in percent. 29.The method of claim 1 , wherein the first portion to be allocated isexpressed as a quantity.
 30. The method of claim 1 , further comprisingdetermining a range of volume to be allocated to the first ranked bidderby limiting the range to a capacity of the first ranked bidder.
 31. Inan electronic auction wherein an award for a given auction round isallocated amongst a plurality of highest ranked bidders including atleast a first ranked bidder and a second ranked bidder, a system forproviding an incentive to the first ranked bidder and the second rankedbidder to each improve their respective bids during the conducting ofthe auction, comprising: a sponsor processor; a first bidder processorcommunicating with said sponsor processor; and a second bidder processorcommunicating with said sponsor processor; wherein said sponsorprocessor contains instructions which, when executed by said processor,cause said processor to: (A) conduct the electronic auction; and (B)allocate the award between at least the first and second ranked biddersin accordance with a formula and the bids of the first and second rankedbidders; wherein a factor of the formula is an actual bid differentialbetween a bid of the first ranked bidder and a bid of the second rankedbidder, and wherein application of the formula to bids of the first andsecond ranked bidders causes a first portion of the award allocated tothe first ranked bidder to increase and a second portion of the awardallocated to the second ranked bidder to decrease as a magnitude of theactual bid differential increases.
 32. The system of claim 31 , whereinsaid first bidder processor and said second bidder processor communicatethrough an auction coordinator.
 33. The system of claim 31 , whereinsaid first bidder processor and said second bidder processor communicatethrough the Internet.
 34. A computer readable medium having storedthereon instructions for conducting an electronic auction wherein anaward for a given auction round is allocated amongst a plurality ofhighest ranked bidders including at least a first ranked bidder and asecond ranked bidder, the auction having rules that provide an incentiveto the first ranked bidder to each improve their respective bids duringthe conducting of the auction, wherein the instructions, when executedby a processor, cause the processor to: (A) conduct the electronicauction; (B) allocate the award between at least the first and secondranked bidders in accordance with a formula and the bids of the firstand second ranked bidders; wherein a factor of the formula is an actualbid differential between a bid of the first ranked bidder and a bid ofthe second ranked bidder, and wherein application of the formula to bidsof the first and second ranked bidders causes a first portion of theaward allocated to the first ranked bidder to increase and a secondportion of the award allocated to the second ranked bidder to decreaseas a magnitude of the actual bid differential increases.
 35. A biddingdevice operated by a bidder during an online auction wherein an awardfor a given auction round is allocated amongst a plurality of highestranked bidders including at least a first ranked bidder and a secondranked bidder, the auction having rules that provide an incentive to thefirst ranked bidder and the second ranked bidder to each improve theirrespective bids during the conducting of the auction, said biddingdevice comprising software that enables the bidder to submit bids to asponsor processor during the auction; wherein the sponsor processorconducts the electronic auction and allocates the award between at leastthe first and second ranked bidders in accordance with a formula and thebids of the first and second ranked bidders; and wherein a factor of theformula is an actual bid differential between a bid of the first rankedbidder and a bid of the second ranked bidder, and wherein application ofthe formula to bids of the first and second ranked bidders causes afirst portion of the award allocated to the first ranked bidder toincrease and a second portion of the award allocated to the secondranked bidder to decrease as a magnitude of the actual bid differentialincreases.
 36. A method of varying an allocated volume in an auctionhaving at least a first bidder and a second bidder, comprising applyingan actual differential between bids placed by the first bidder and thesecond bidder in an auction to the formula to determine the volume to beallocated to the first bidder.
 37. The method of claim 36 , furthercomprising: determining a range of volume to be allocated to the firstbidder; and formulating a formula based on the range of volume to beallocated to the first bidder and a differential bid range.
 38. Acomputer readable medium having stored thereon instructions which, whenexecuted by a processor, cause the processor to: determine a range ofvolume to be awarded to a first bidder; formulate a formula based on therange of volume to be awarded to the first bidder and a differential bidrange; and apply an actual differential between bids placed by the firstbidder and a second bidder in an auction to the formula to determine thevolume to be awarded to the first bidder.
 39. A bidding device operatedby a bidder during an online auction, said bidding device comprisingsoftware that enables the bidder to submit bids to a sponsor processorduring an auction; wherein the sponsor processor determines a range ofvolume to be awarded to the first bidder; wherein the sponsor processorapplies an actual differential between bids placed by the first bidderand a second bidder in an auction to a formula based on the range ofvolume to be awarded to the first bidder and a differential bid range todetermine the volume to be awarded to the first bidder; and wherein thebidder submits bids to the sponsor processor through the bidding device.